The Golden Rule of Smart Investing: Pay Yourself First

It is incredible how many people live from paycheck to paycheck. It might be the way of millions of people, but it isn’t the smart way. It certainly doesn’t make life easy when it comes to investing for your future. If you put everyone and everything else first financially, you won’t have any money left by the end of each month to invest in something for you.

Get smart – pay yourself first

This is the way smart investors work. It’s a very simple rule to live by. When you get paid you pay a certain percentage (worked out in advance) into a savings account. Ideally you should have plans for that money other than putting it into a low paying savings account, but the idea is a good one to start with. We should all have an emergency fund in place for cash emergencies, and most people simply don’t have one. Either that or it is incredibly small. So when you start paying yourself every month, make sure you create this fund before doing anything else.

How do you decide how much to pay yourself?

This is simple. The first thing to do is to work out what your outgoings are. Then, work out how you can legitimately and realistically reduce them to save money. If you spend all your money each month it makes sense that you have to learn how to manage it before you can start to put some away. This is easily done by setting up a list of your outgoings and constructing a budget.

First, tip the balance back in your favor by ensuring you are living completely within your means. Then go through all your bills to see how you can reduce them. You won’t be able to do this for all of them but you can certainly do it for some.

Once you know you are well within your means, aim to pay yourself ten per cent of your total income each month. If you get paid on the 1st of the month, set up a direct debit for ten per cent of the amount to go into your savings on the 2nd. That way it won’t get forgotten. Over time you’ll be amazed at how those savings can grow too.

Enjoy a lifelong practical savings habit

The great thing about learning to do this is that the habit will establish itself and will last a lifetime. You can develop a range of investment opportunities and divert the monthly payment into one or more of them, depending on what you choose.

But whatever investments you decide to opt for, it must all stem from this initial habit of paying yourself first. This is the only way to make sure you have cash available to invest, instead of frittering it all away over the course of the month. Try it today and you will see how the results are far better than you ever thought they could be.